Mortgage Observer met with Mr. Sotoloff, who BREDS Managing Director and Chief Investment Officer Michael Nash calls ‘employee No. 1.’ He spoke about his experience on both the financing and development/acquisition sides of commercial real estate and the opportunity to help establish Blackstone’s debt business in the fall of 2007.
Mortgage Observer: How did you get started in commercial real estate financing?
Peter Sotoloff: I’m originally from Chicago, and I grew up in a real estate family. My father was a developer in the city, and I grew up watching him build a lot of buildings there. I always found enjoyment in that, and when I went to Wharton for finance, real estate and management, what I found was that, through the capital markets, which is what I focus on, I’d be able to combine part real estate with my love of finance. That gave me a great perspective, which carried me forward. I began my career at Goldman Sachs in the real estate private equity division and was able to combine both of those skill sets in that role. I did a bunch of internships in college, in media and other areas and kept coming back to real estate. It’s a social business with a lot of interesting people, and every project is unique.
After leaving Goldman, you worked for Morgan Stanley and the development firm Tribeca Associates. How did your career evolve during that time?
I was at Morgan Stanley for two years and then got hired away to be a partner at Tribeca Associates. We did a lot of deals with institutional capital, and in that role as an equity partner, I got a lot of hands-on experience working on deals primarily in the tristate area—both developments and acquisitions. I was able to round out my debt finance experience that way. Working at Goldman Sachs, Morgan Stanley and Tribeca Associates really developed me as an investor and a manager of institutional capital.
What led to you joining Blackstone in October 2007?
My colleague Mike Nash, who’s our chief investment officer, had left Merrill Lynch to join Blackstone, and the timing was right. He and I had been talking about doing something together for a number of years. I helped to establish Blackstone’s debt business. Blackstone had been thinking about establishing a real estate lending platform for a number of years to capitalize on the knowledge, track record and relationships developed over a 20-plus history in the business, and it was an opportunity I couldn’t refuse. Since then, Jon Gray, our global head of real estate, and Mike Nash have been great mentors as my career has developed.
What are the two or three biggest transactions you worked on in the past year that you can speak about?
Between our mortgage REIT, BXMT, and our private funds, our team put out over $4 billion in originations this year, so it has been a record year here again. One of the more notable deals was 425 Park Avenue, which was a $152 million predevelopment bridge loan we made to a joint venture of GreenOak and L&L on a long-term ground lease. They’re going to redevelop that into a world-class, Class A building. Another was a $273 million condominium conversion loan we originated for 22 River Terrace in Battery Park City in New York.
As the economy continues to improve, how has Blackstone shifted its strategy where commercial real estate lending is concerned?
We have a very flexible mandate in our BREDS business—we can invest in securities, which is how we started, buying CMBS at deep discounts when there were no loans to be made. That proved to be an excellent strategy that set us going and led to legacy loan purchases. Now, the market is healing, and there are a tremendous number of borrowers who need capital. Senior banks have remained very disciplined in the market in terms of what they’re willing to lend on properties, which provides great opportunity for us to provide value-add mezz, B-note and preferred equity with our business. Many of the people we bought debt from have led to new originations. Right now, Europe’s a very attractive market for us on the legacy loan purchase side and also on the origination side with the retrenchment of the banks. There’s a real focus on growing that franchise.
With commercial real estate continuing to rebound in New York and other major cities, do you have any concerns?
You want to obviously pay attention to frothiness, overheating and discipline in your structure. We’ve had no losses, we’ve had very good success, and that’s by choosing very high-quality borrowers, working with guys who are focused on long-term relationships, doing larger transactions in institutional markets and structuring appropriately. There are many deals that we look at, and we’re very responsive, but they don’t always all add up to something where we’re comfortable, but we try to accommodate our clients. We’ll generally look at complex, transitional or value-add transactions and want to do them with folks we believe are among the best in their respective markets and focus.